Buyouts & Optimization Efforts Likely To Fuel Sysco's Growth

Sysco Corporation (NYSE:SYY) has been gaining from strategic buyouts, well-chalked growth endeavors and efficient financial strategies. Such efforts have helped this leading distributor and marketer of food products to augment business and develop a robust product portfolio.

Portfolio Expansion Through Buyouts

Acquisitions have been a key catalyst for Sysco’s expanding distribution network and customer base. Coming to major buyouts, the company recently inked a deal to buy Kent Frozen Foods, a leading foodservice provider in the United Kingdom. Currently, the deal is subject to approval from the Competition and Markets Authority. Kent Frozen Foods is expected to form a part of Sysco’s U.K. and European business bandwagon, which already includes popular names like M&J Seafood, Fresh Direct and Brakes. Moreover, the deal is likely to help the company effectively combat sluggish business trends in the United Kingdom and induce a turnaround in the region’s performance.

In 2017, Sysco acquired HFM FoodService and the remaining 50% stake in Mayca Distribuidores. Apart from that, the acquisition of London-based Brakes Group in 2016 has been benefiting the company significantly and is expected to generate sales of approximately $55 billion annually.

Notably, Sysco expects to achieve 0.5-1% sales growth through acquisitions in the long run. Other major food companies such as United Natural Foods Inc (NASDAQ:UNFI) and McCormick & Company (NYSE:MKC) have also been strengthening their foothold in the industry through strategic buyouts.

Strategic Plans Favor U.S. Business

Sysco has been keenly working on business optimization strategies for inducing growth and improving operations. To this end, the company outlined some important strategies at the New York Investor Day event in December 2017, wherein it highlighted its three-year financial goals. Sysco’s four core strategies include enhancing consumers’ experience, optimizing business, stimulating power of its people and achieving operational efficiency. By evolving with changing consumer preferences, Sysco is committed toward investing in technology and enhancing e-commerce operations. Moreover, it plans to improve supply chain operations, increase transparency and enhance delivery capacity.

Driven by these strategies, the company expects gross profit to rise in the band of 55-65%, while it anticipates 20-25% reduction in administrative expenses by 2020. Earnings per share are projected to grow at a double-digit rate on an average by 2020. Further, we expect such efficient financial plans, supported by strong balance sheet and cash positions, to aid the company in continuing with investments and expansion efforts.

Sysco’s focus on product management, efficient pricing and revenue management initiatives have been favoring the company’s domestic business. Notably, sales at the company’s U.S. Foodservice Operations improved 4% to $9,849.9 million, with local case volume within U.S. Broadline operations rising 2.8%. Also, gross profit increased 3.8% at the segment.

An Environment-Friendly Approach to Cost Reduction

Apart from augmenting financial strength and improving existing operations, Sysco has also been adopting an innovative approach toward delivering environment friendly services. In December 2017, the company reserved 50 new fully-electric semi tractors at Tesla (NASDAQ:TSLA) to introduce alternative-fuel vehicles to its fleet. This move will not only be environment friendly, but is also likely to curtail fuel and transportation expenses considerably.

Bottom Line

The company’s dedicated efforts to emerge as a strong contender in the foodservices arena are laudable. Moreover, an impressive surprise history speaks volumes regarding the effectiveness of the company’s growth plans and operational polices. Such efforts are expected to continue strengthening the company’s business and sustain growth.

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